"In view of the situation in Swat, at least 500,000 people can migrate from that area. Camps are being established for them," Mian Iftikhar Hussain, North West Frontier Province's information minister, said.

The military had earlier ordered neighbourhoods on the edge of Mingora to evacuate and announced the end of a curfew for the displaced to flee, a move that sparked fears of an imminent new offensive.

Kamal Hyder, Al Jazeera's Islamabad correspondent, said: "This is a major catastrophe unfolding in the North West Frontier Province."

"The Pakistani Taliban are showing no signs that they are going to put their weapons down and that means that a military operation will happen."

Khushal Khan, the top administrator in Swat, said Taliban militants were roaming the area and laying mines.

There were reports of gunfire and a witness in Mingora said black-turbaned fighters were deployed on most streets and on high buildings.

Fighters were also reported to have surrounded a paramilitary base at a power station in the town.

Sharia deal

An official military statement said that security forces had beaten back an attack on the camp, but the Reuters news agency quoted an official as saying an operation might be launched to rescue 46 soldiers besieged there.

"We're acting with restraint because they're using civilians as a shield, but we'll go after them if the situation gets worse," the official was quoted as saying.

Muslim Khan, a spokesman for the Pakistani Taliban in Swat, said that the fighters were in control of "90 per cent" of the valley.

A deal in February between the government and the Taliban, which allowed the Taliban to enforce their interpretation of sharia, or Islamic law, across Malakand district in return for peace, had offered some hope to residents.

But ongoing battles between troops and Taliban fighters in Buner, a town in neighbouring Swat, has virtually derailed the deal.

The Taliban has said the actions of its fighters were a response to army violations of the peace deal, such as mounting attacks and boosting troop numbers in the region.

Nuclear concerns

The pact had alarmed US officials concerned that Swat would turn into a haven for fighters near Afghanistan, where US and Nato troops are also battling the Taliban.

Washington has also expressed concern over the security of Pakistan's nuclear arsenal, although it said it thought the nation's nuclear weapons were secure.

Asif Ali Zadari, Pakistan's president, is set to meet Barack Obama, his US counterpart, in Washington on Wednesday, where he is expected to ask for more support in the fight against the Taliban.

Hundreds of thousands of people have fled fighting between the military and the Taliban in different parts of Pakistan's northwest since last August.

The exodus has put another burden on Pakistan's economy, already being propped up by a $7.6bn loan from the International Monetary Fund.